January 4, 1999

Intuit MBA Weighs in on Microsoft

Harris does have some background in the case. In 1994, shortly after acquiring Parsons Technology (over which Harris presided), Microsoft launched its ill-fated bid to purchase Intuit. In what would be the first of the government's lame-brained decisions in the case of software giant Microsoft, the Justice Department denied the merger on the grounds that it would create a monopolistic situation in the area of personal finance software.

The hypocrisy evident in this decision has gone unnoticed for five years. First, Intuit already has a stranglehold on personal finance software. Quicken owned 80% or more of that business at the time. Handing this business to Microsoft would not have created dominant market share, but would have only changed the ownership of this market share.

Second, Intuit's purchase of Parsons went virtually unnoticed by the government. At the time, Parsons was the number two tax software company and Intuit was number one. By acquiring Parsons, Intuit locked in its number one position by eliminating its strongest competitor. This point did not come out in the media because Parsons' sales were primarily direct-to-consumer and hence were not reported in PC Data and other industry sales reports.

When Intuit and Microsoft announced their merger intentions just days after the Parsons deal was complete, the pieces to the puzzle fell into place. In order to secure Microsoft's number one position in tax software, it sent Intuit to buy number two prior to the purchase. Microsoft figured (correctly) that they would never be allowed to get away with such a blatant attempt at strangling personal finance, so they sent in the little guys to do the job while nobody was watching.

According to the MSNBC report, "One reason that Intuit initially agreed to the deal, Harris wrote, was fear of Microsoft’s using Windows as a club over Intuit’s core personal finance software business." Right. But let's take a closer look at what these Harvard MBAs at Intuit were up against. On the one hand, they could accept the Microsoft deal and their own personal net worth would increase by literally millions of dollars. In the process they would be selling out their customers and their employees. On the other hand they could fight the Microsoft proposal and actually have to work to maintain market share and their personal financial status. So what do they do? Of course! Sell the company and pocket the blood money.

Fortunately for customers and employees, DOJ interceded and squashed the deal. Interestingly, Microsoft is still struggling in the personal finance market and still doesn't have any tax software. So much for that "club" the MBAs were afraid of.

The problem with Mr. Harris's arguments is they have no basis in any reality known on earth. Microsoft does not "choke" the Internet, but rather through the networking functionality built into Windows, MS has made it easier for anyone to write Internet-aware apps! And Microsoft has not wielded a "club" over Intuit, but rather has sat back in awe while a savvy Intuit has held MS Money at bay.

But hidden in these circumstances is the reality of the software market. The MSNBC report goes on to say: "Intuit learned before entering into a definitive merger agreement with Microsoft in October 1994 that Microsoft had engaged in talks with online bill payment specialist CheckFree Corp. and credit card giant MasterCard International to develop a service called 'WinATM.' This service would have given Windows a checkbook register and the ability to download financial information and to initiate electronic bill payments, essentially duplicating the core features of Intuit’s Quicken."

Intuit feared that MS would bundle a checkbook with the OS and erode Quicken's market share. But think about it: Most people keep track of their checkbook on paper. Microsoft includes a calculator function in Windows that facilitates this. But Quicken continues to sell. Microsoft distributes a program called Excel that works great as a check register. But Quicken continues to sell. CheckFree offers a stand-alone checkbook program for use with its service, but most people access CheckFree through Quicken.

Why is Quicken continuing to succeed with all these factors working against it? Because Quicken is an intuitive, easy-to-use program that combines the features people want in a personal finance package with a price they can afford. Period.

How do you compete with Microsoft? The same way you compete with anyone else: You create a better product. Does this work? Sure it does! Myst outsells Microsoft Flight Simulator in the entertainment category. Logitech continues to make great pointing devices even while Microsoft makes mice. The Internet squashed Microsoft's "MSN" back in the good ol' private network days. CNN still beats MSNBC in the ratings. And Netscape Navigator still outsells MS Internet Explorer though you'd never know it from their testimony (though they may lose that advantage if they don't get their execs out of Washington DC and back in the office focusing on product).

Does Microsoft dominate any categories? Sure. With products like Excel and Word that truly rock. Do I use Excel or Word because I'm forced to? No, I use them because I like their power and features. Do I use FrontPage because I'm ordered to by some government authority? No, I use it because I appreciate its simplicity and appropriateness to the task.

Harris reveals the slippery ground on which he stands when he describes why Intuit chose a bundling deal with Microsoft Internet Explorer. After saying they were bullied into breaking their relationship with Netscape by a Microsoft contract that required exclusivity, he reveals that, “The recommendation from our technical team was to use the Internet Explorer.” So why did they go with IE? Because they were forced to? No, because it was a better product.